As the competitive landscape for the Cloud Computing World begins to take shape, forming Keiretsus is one of the most important things for the players to be doing at this time. Most of them do not have enough technology they can call their own to create a total solution for their brand. Even mighty Amazon, which comes closest, benefits from software like RightScale’s asset management suite (see my interview of RightScale’s CEO, Michael Crandell).

As such, there will be a rush to round out complete suites in these early days through partnerships. This is a normal business pattern and its good news for both the partners and customers. It will lead to more complete solutions, better integration between the components, greater standardization, and it signals the legitimization of the market and the beginnings of a shift from early adopters to the mainstream. In short, it is a sign of great health in momentum for Cloud Computing.

The latest news of the impending Keiretsu was the joint announcement that Elastra will partner with VMWare. I saw that one on Twitter this morning, BTW. It made me think of the various Keiretsu as revolving around 3 different major markets, each of which corresponds somewhat to an equivalent market in the conventional world:

The Pure Cloud is the Amazon-style market. It offers generic Cloud Infrastructure to all comers. It’s Cloud as a Service, and is analagous to the Software as a Service world. This world keeps costs extremely low and relies mostly on Open Source software (e.g. Xen Hypervisor) and internally developed software (S3 or Elastic Block Store) to keep the costs low. The model works great at delivering very low costs. My company, Helpstream, saved a bundle recently by switching.

The VMWare/Elastra combination is also interesting. In my (so far cloudy) framework of different Cloud models, I put VMWare in the same category as 3Tera (another great company I’ve interviewed). These companies are charging for software that Amazon has built or Open Sourced (not precisely, but the software is analagous to Amazon’s Xen Hypervisor and the Elastic Block Store they built). Presumably the customers for this type of Keiretsu will be hosting providers that want to play in the Cloud but do not have enough software development capability themselves to get there. There is also a market for corporations that want to create private data centers that take advantage of Cloud technology, or that are Cloud compatible so they can build composite apps that span the Cloud and the private data center. This is an interesting market, to be sure, it’s just different than the “mainstream” (if I can use that word this early in the Cloud cycle) Cloud Market that companies like Amazon or Google represent. It most closely resembles the perpetual license software market, with its vendors selling licenses for infrastructure. In fact it isn’t an exact analog because a lot of this stuff is services, but metaphorically, it’s pretty close.

The last analagous market is what I call the Vertical Cloud. Seems like there is always a vertical opportunity to be had in any megamarket, and this can be quite a lucrative field to play in. In the Cloud world, the verticals are represented by Google and Intuit, who have created special-purpose cloud platforms that cater to particular desires. One could even view things like Facebook applications as existing in the Vertical Cloud market.

Next we have the crossover players. RightScale is both a useful component for the Amazon world, and the company is also offering to deliver their service on clouds more like the Infrastructure Sellers operate in. There are many reasons why this is a valuable niche. To learn more, check out my interview of RightScale CEO Michael Crandell. Elastra is another product available now in two of the Cloud markets. Shifting over to the other side we see Ruby On Rails as a specialized vertical being delivered on the Amazon Cloud by EngineYard and Heroku, hence they’re in the crossover space between the two types of markets.

There are a lot of other players I”ve left off the diagram just to keep it clean and obvious at a glance what’s happening. For example, Force.com is trying to be both a Vertical, where it is ideal for creating add-ons to the Salesforce ecosystem, and a true Cloud as a Service where any generic application could be built there. To make it even more interesting, Force.com connects to both Amazon and Google. This framework provides a way of thinking about possible future combinations or products. What are other vertical crossover opportunities between the generic cloud and the verticals? What will be the crossover opportunities between the infrastructure and vertical worlds? Will there be more than just the 3 big markets, or are the analogs to conventional software markets convincing enough to tell us this is probably all there is?

It’ll be interesting to watch the Clouds continue to evolve and see what unfolds!

Should the person who runs the customer service operations at a ski school also be required to love skiing?

Can the CFO of a large church be an atheist?

Does the head of marketing at Kodak have to have a passion for chemicals?

He winds up preferring passion for what you do to passion for the product its associated with, although he freely admits he’d like both. Isn’t it ironic he talks about Kodak as involving passion for chemicals rather than photography, BTW?

I’m left a little uncomfortable with the whole post. It seems very un-Godin-like. He’s usually unequivocal in his views, and yet he seems to allow for the possibility of someone who likes being a CFO but could care less about what the organization does.

Where startups are concerned, and especially when it comes to software development, I can’t be so unequivocal. Looking at my own personal experience running development organizations, it would be impossible for me to do that well if I wasn’t passionate about the products we were building. Perhaps you don’t have to love skiing to make sure customer service operations at a ski school are making customers happy. But I don’t see how you can build insanely great software if you have no rapport with the software or its users. Software Engineering is one of those disciplines where it’s all too easy to lose the plot and become infaturated with tools, platforms, languages, patterns, and any other thing that the customers often can’t see at all. It leads to all the wrong things, and ultimately, to poor software.

So when you’re building your development team, when you’re hiring its members, find a way to tell whether they’re passionate about what they’re building and who they’re building it for. It’s important. The oft-repeated mantra to hire people who are “smart and get things done” just isn’t good enough. In fact, I would take “passionate, and gets things done” first if I couldn’t add smart into the bargain. For a startup, you need to insist on all three.

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What features does a server absolutely positively have to have to be a candidate for a big cloud data center? What features would put it ahead of other servers in the eyes of the manager writing the checks for that cloud computing data center?

There’s an interesting article out about how Rackable Systems (and presumably others) are building machines inpsired by Google that answer those questions better than ever before. We’re talking about features like heat-resistant processors, motherboards that contain 2 servers, and that only need one power supply voltage instead of 2 or 3.

One thing the cloud does, is it will force standardization and penny shaving at the hardware (and software) end. When Amazon, Google, or one of the others is building a big cloud data center, they want utility-grade computing. It has to be dense on MIPS value, meaning it is really compact and cheap for the amount of cpu power delivered. Designs that add 25% to the cost to deliver an extra 10% in power won’t cut it. The Cloud will be too concerned about simply delivering more cores and enough memory, disk, and network speed to keep them happy. Closing a deal to build standard hardware for a big cloud vendor will be hugely valuable, and in fact, Rackable started out life building systems for Google.

It’s going to be interesting to watch the Cloud Server market evolve. Reading these articles reminds me of Southwest Airlines, which dramatically improved its cost savings by standardizing on just one kind of airplane, the 737. Not only did that one-size-fit-all for Southwest, but it made their maintenance costs dramatically lower becaues they can standardize on spare parts for one aircraft, mechanics trained on one, and so on.

Cool beans!

Related Articles

James Urquhart, one of the top cloud bloggers, has given us mention in his related post. There’s some further great analysis from James as well, so check him out!

This morning I see that some folks have rushed into availability a Twitter search engine called Twitority that does precisely what these two gents requested–it ranks search results based on how many followers (the “authority”) the Tweeter has. I heard about it from Loic’s blog, where he adds that he doesn’t see this sort of thing as censorship, but just one useful form of filtering.

Is Twitority an Echo Chamber as I predicted?

Well let’s do that search on LeWeb that Loic suggested was his reason for wanting such a feature. His problem was he didn’t want to read through 7,000 Tweets about LeWeb. Here is what I get from Twitority on the first 10 results:

7. ledretch: response to lezepf about not having enough time with 3 jobs to look at LeWeb.

8. dalesio: Is watching the Gillmor gang live at LeWeb while his mom makes him bacon, pancakes, and eggs.

9. dalesio is also watching @garyvee at LeWeb because he brought the THUNDER!!!

10. ulihegge: It’s in German. No idea what he’s saying, but it looks like he is watching Gillmor gang too.

OK, not a lot of great insights there based on “authority”. Let’s try the first 10 on Twitter for comparison: it’s not a lot better, BTW.

1. TwitLinkRSS teling us of Loic’s post about Twitority.

2, 3: luv_leweb and jlegon post identical messages (retweeting is alive and well) on a video interview with Loic.

4-10: luv_leweb and others repeating itself about the problem with damned bots (same as #2 on Twitority). Seems the bots themselves have annoying feedback loops.

Here are a few thoughts:

The Echo Chamber begats the Echo Chamber. You can try to make a living just writing about whatever shows up on TechMeme or whatever Arrington/Scoble/<insert favorite big name here> says, but you’re just doing more echoing, and people are tired of it. The web eliminates friction. If everyone conforms, only the few leaders at the top will benefit. Seek out the long tail and write about that. If you must write about the big stories, add some sort of unique value or spin. I’m trying to provide some analysis and a model for how to think about it, for example, rather than just calling names and creating link bait. Scoble gets this idea that the Echo Chamber begats the Echo Chamber when he says:

It is far more important who you follow than who follows you: if you follow people just to get followers you’ll end up being overworked, deep in information overload, and superficial to boot.

Search is particularly hard when what you are searching for is caught up in the Echo Chamber. Searching for LeWeb is a prime example. It’s an Echo Chamber experience, and so neither set of search results had much interesting to say about it.

Immediacy is a natural filter that trumps followers. When confronted with searching Echo Chamber Terms, opt for time as your filter. You want the earliest posts and not the echo posts. This has been one of the great charms of Twitter. It’s a lot less about searching and a lot more about being right there as it happens. That’s why Scoble lives on these darned feeds 24×7. That’s why he’s got the news and you don’t. If you don’t want to live on it 24×7, don’t write about the Echo Chamber stories. Head out into the hinterlands and find something interesting. If you succeed, people will be echoing you!

It’s clear from both search examples above that some smarter filtering is needed. Looking at these results, being able to get to the origin of things being retweeted in a smart way might be valuable. If I had only seen the Tweet that started complaining about bots (perhaps that was dotdean), and the other slots were other equally original thoughts and not echoes, that would have been more interesting.

The best filter would do what Scoble says he wants: to have smarter conversations every day.

And why not? Arrington has 36,000 plus followers and LeMeur has 15,000. There tweets will zoom right to the top of most searches. What about the rest of the Twitterverse? Hey, Loic’s French, he understands the phrase, “let them eat cake.”

This is a seriously good way to make Twitter search Fail big time. No better way to amplify the Echo Chamber. Is that all Twitter is? The Follower haves talking while the Follower have-nots listen? Have nots are to be seen and not heard? “Let’s move the riff raff aside, this is our conversation,” seems to be the message.

As Arrington says, this is ugly:

The way he argues isn’t pretty (“We’re not equal on Twitter, as we’re not equal on blogs and on the web”) but what he says has merit.

Scoble, fortunately, is a Follower Have who understands a little better what the ramifications will be. As he puts it:

# of followers is a useless metric. Everyone is gaming that. What I’d rather see is tweets presented in order of most retweets to least. THAT is a metric that is hard to game and very useful.

Interesting idea to use retweets. It is essentially the Twitter analog of Page Rank where web pages with more links to them get more play in the search results.

Here’s a bold idea: What if the reason Twitter is so successful is precisely that it doesn’t let the top gamers win? What if it succeeds through promiscuity at all levels and precisely because it is not trying to be the Techmeme-style Echo Chamber that LeMeur’s suggestion leads to?

If you want diversity then you need to increase friction. LeMeur’s original issue that there were 7000 Tweets from LeWeb and he didn’t want to read all of them is a manifestation of friction. If you’re done talking about anything new and interesting, and just want to spread the word of a few, then knock out all the friction. The Echo Chamber will be alive and well. I wish there was a knob for all of my different Internet feeds that let me smoothly vary the friction to go from looking at the Echo Chamber to looking at the most diverse fringe elements of the Internet. I’d like the Anti-Techmeme that finds for me those things off the edge of the radar but within my sphere of interest. Shiny new things I haven’t seen before. People I haven’t heard from. I’m guessing Scoble is on the same kind of mission, given the potent news network he has built up.

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Long ago, just after the Berlin Wall came down, I visited Russia. We went to St Petersburg and Moscow and had a great time. It was a tremendous culture shock to see these places back then. And, at the time, the Russians themselves were going through a tremendous culture shock in terms of their internal clash between communism and capitalism. I’ll never forget chatting with our tour bus guide. She was a young lady in her late 20’s, and she approached me because I was wearing a Borland Turbo C T-shirt. She wanted me to know that she knew Borland very well and that she was a programmer who used it in her day job. This piqued my curiousity as I wanted to know why she was acting as a tour guide then. She told me that at that time, a lot of people had two jobs. One was their communist job, working for the state. The other was their capitalist job working for themselves (her words, but I sure like the sound of it). As we continued to chat I learned that there was a big difference between these two jobs. The tour guide job was only part time, but it paid her several times the income of her full time state programming job. She was largely keeping the state job because of its benefits, and out of fear the state might yet swoop in and destroy the nascent capitalist economy that was growing there. The other thing she said that really struck me was that the older people in Russia did not know how to go about getting a capitalist job. They just didn’t understand how to look for work or really how to do the whole capitalist job thing at all. As a result, they were at a serious disadvantage to the young, who had embraced the new ways.

As I was reading Maryanne Paskowski’s Business Week article, “What Does LinkedIn Really Get You?”, I saw a touch of that same chasm between those who know how to use Social Media to achieve some goal and those who are trying to figure it out. Maryanne writes about the experiences of her friends using LinkedIn and not getting anything for it as though the whole Social Media world is going through the motions and not getting anything for it. That is most emphatically not true, and there is plenty of evidence to the contrary. She wonders why her friends don’t just pick up the phone and forget the whole Social Media thing. Well Maryanne, thinking that the phone is a substitute for the web belies a huge lack of understanding of what the web is capable of. Personally, I use both extensively, but they are useful in quite different ways. I’ve used Social Media to gain access to all sorts of folks, including CEO’s of various companies whom I have interviewed on the phone for this blog. It’s pretty easy to call these folks up and say, “Hey, I’m a reporter from Business Week and I’d like to talk.” Try that when you aren’t a reporter from Business Week. Try it when you aren’t really anything because you are unemployed.

LinkedIn, in particular, has been a fabulous resource for me in making these kinds of contacts. The world of blogging, Twitter, and Friendfeed have also helped out. Facebook is fun, but I’ve not used it to good business purpose yet, though I keep an eye on it.

My company, Helpstream, is founded on the notion that the web is a first class channel that companies need to address in addition to the telephone. An extremely large number of companies totally get this. We’re just at the beginning (literally we launched our product at the beginning of 2008), but already we have 120 customers and 90,000 participants on our service.

Maryanne, one thing I can tell you is you’re probably not going to find out how to use the web effectively over the telephone. As a wise and somewhat diminuative old movie character once said, “There is no try. Do or do not.” Get off the phone and onto the web. Go and engage. Figure out how to make it work. Once you do, you’ll be one of the Social Media Have’s. It’s a much richer experience than the Have Nots.

Each of them is a genuine gem – in the case of Helpstream, I can’t even find a flaw.

and:

This is my paradigm company for a CRM 2.0 feature set. Para-digm. They seem to have it all together. They are the ones that I use as the example of the difference between CRM 2.0 and Web 2.0. They are my numero uno for explaining the difference between CRM 2.0 and Web 2.0.

Thanks for the kind words, Paul! This is exactly the kind of discussion we have with our partner Oracle, which is extremely interested in the whole “Social CRM” phenomenon. Helpstream is, as Paul suggests, a really unique combination of traditional Customer Service technologies with some new Web 2.0 technologies that really rocks the house with new levels of ROI.

Also on deck are a couple of fabulous articles about Helpstream’s recent move to the Amazon Cloud. Larry Dignan says we are “the blueprint” for how others can move to the cloud. Thomas Foydell says Helpstream “moved up a whole other level” relative to other SaaS vendors like Salesforce and Netsuite by moving its datacenter into the cloud.

They’re both great articles if you want to know more about the company that is my day job.

One of the more amusing stories in the blogosphere and Twittersphere’s is the call by Michael Arrington for an intervention on Robert Scoble’s behalf. The concern, which Scoble himself recognizes (btw, Robert, I still take exception to your lack of trackbacks!), is that he has so monopolized his time interacting with Friendfeed and Twitter, that he has no time left to create real value, perhaps in the form of blog posts.

I think Scoble’s post does a pretty good job of explaining some of the subtle differences between blogging, Twitter, and Friendfeed. Let me paraphrase what he has said:

Losses: Thought Leadership, Ad Revenue, Losing Blog Audience Slowly

Scoble is less a thought leader because he isn’t blogging his thoughts in long blog posts. So blog posts are more effective at establishing thought leadership because you can express your thoughts more fully. Seth Godin alludes to this in a great post You Will Be Misunderstood where he says:

If you’ve got 140 characters to make your point, the odds are you are going to be misunderstood (a lot).

Scoble says Seth Godin is missing out on the value of Twitter, but I think that last post shows clearly that Godin understands the value clearly and isn’t interested in what it offers him versus the cost. Godin is, if nothing else, very focused on not being misunderstood while remaining as pithy as possible. It’s one of the things I love about him. He is also very clearly a Thought Leader and not someone trying to dig up more conversations to join.

FWIW, I never really have thought of Scoble so much as a Thought Leader originating a lot of ideas (although he has certainly had a lot of great ideas), but more as the guy who knows everyone, sees everything, and acts as everyone’s lens to view what’s interesting in that incredible idea stream. He doesn’t originate the stream, he focuses and culls it as a way of adding value. I think he probably agrees from what I read, and so may not care so much about a loss of thought leadership. These other tools let him do what he sees as his mission and he ignores what others may see as his mission.

It would be a good question for people like Michael Arrington to ask themselves what they think their mission ought to be. Are they Thought Leaders? Or are they also acting as lenses? Which is better? Which plays to their strengths?

In fact, it’s interesting in this context of, “What is your mission?” to look at Scoble’s remarks about Seth Godin:

Seth Godin, for instance, only blogs and he rarely gets discussed on Twitter or friendfeed. If he were active he’d be discussed 25x more.

Compare that to the 140 character quote from Seth. Scoble wants to be discussed. Seth wants to be understood. Those are much different missions. It’s no accident that a savvy market like Seth Godin understands the difference. I think Scoble is also extremely clever as a marketer, and would understand the difference too, I think he assumes Godin’s mission is the same as his own, which it looks to me is not at all true. Ask yourself about these missions. Do you want to be talked about or understood? I’m more in the want to be understood camp. It’s creepy to me to be talked about.

Wins

I think Scoble is dead on with these things and they are fascinating as well as very valuable. Given my chosen mission, I am not sure I would emulate his strategy, but I want to understand how to break it down into these component parts so that the tools can be employed against other missions I may need to execute on. Let’s look at each in a little more depth.

Reach (More people, more news)

It has always been important to Scoble to be plugged into more sources than anyone. This guy has written about reading vast numbers of RSS feeds, for example. I seem to recall him following something like 1000 feeds. I strain if I get close to 200 and am sitting at 186 as I write this. With 1000 feeds Scoble had 5x the breadth of information capture. Now Friendfeed and Twitter have allowed him to multiply that still further. He’s a guy who has blown up the limit on number of Friends some services will let him have. Now he says he has 5400 people who feed him news, so that means he has 5x the bandwidth he had when he just focused on blogs. That’s pretty cool!

He also has a huge number of followers: almost 68,000 combined on these two services. That’s huge! Scoble is reaching a lot of people. He compares this to Arrington, who is much less, but who has more on his blogs and wonders what the exchange rate is between the two. One thing he mentions peripherally got me thinking. He says advertisers are starting to want to reach people other than geeks. I suspect the audience on Twitter/Friendfeed is qualitatively different than the audience for blogs. Yes, there is huge overlap, but you just have to be a different sort of person to get into Twitter/Friendfeed. If nothing else, you are an earlier adopter. I’m not sure how this qualitative difference plays to Scoble’s mission, but I would note it for others who want to use these tools.

Lastly, Robert makes a case (I think), that these tools are more viral and that you can grow an audience faster with them than you could blogging. I think that’s also very interesting. In some sense, I think you could use these tools to build an audience that you might later vector on to your blogs and other media channels. Think of Twitter/Friendfeed as the really early part of the funnel, in other words.

Immediacy

It’s clear from the article that Scoble values the immediacy of Twitter/Friendfeed versus blogs, which are very delayed.

Conversation

Scoble calls out the conversation and the participation in the conversation as being very important to him. I think Twitter and Friendfeed are more conversationally oriented than blogs, but there are some spotty aspects. For example, I believe that Trackbacks are an important form of conversation. Scoble, BTW, doesn’t do Trackbacks on his blog, he prefers comments. I think that approach monopolizes the conversation. The blogger says, in effect, that the conversation happens at his house and not at your house or it doesn’t happen at all. Seth Godin, interestingly, is the opposite. He does Trackbacks but not comments. I think Seth is not interested in the conversation, but he is interested in virally spreading memes that he creates. The Trackback does this far more effectively than comments because it incents bloggers to write about his posts. I know I do every chance I get and Seth repays me handsomely with traffic that comes via the Trackbacks. Arrington, BTW, has Trackback, but it is minimized so you have to look hard for it.

Wouldn’t it be fascinating to have Scoble, Seth Godin, and Michael Arrington talk about building web mindshare at a conference some time? Each one is different and fascinating. Let’s throw in Loic too if he’ll sit at the same table.

The other odd thing about the Scoble Omnimedia empire is it doesn’t look like he Tweets his blog posts. His different channels are not really connected very well. This blog is my primary mouthpiece, so I Tweet any posts, and I also send them through Friendfeed (thanks to a request by Scoble). I noticed this because I wanted to talk to Scoble about one of his blog posts, but there was no way to Tweet him about that post as easily as replying to a Tweet he would have done about the post.

Crowdsourcing

The last win Scoble mentions is also fascinating. Scoble wants to actively use his audience to crowdsource value that he can then amplify and feed back to the same audience. In his case, he has a network of 5400 gathering news for him. But I can imagine other ways to use a big network like this for crowdsourcing value.

Conclusion

It’s a fascinating debate, but in the end, I would say Scoble may not need an intervention. I have always seen him as “Crazy like a fox” in his antics. He knows how to build readership. I think he has very effectively used Twitter and Friendfeed towards that end. What happens next will be talked about in colorful terms. That’s part of Scoble being “Crazy like a fox.” He may decide to accept the intervention when all it really means is he spent a year building a much bigger base that he now will feed content using other channels while reducing his investment in Twitter and Friendfeed to the crowdsourcing mode I mention above. Time will tell, but I learned a lot about how to use these tools watching this debate!

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Fascinating post by Larry Dignan where he looks at Bernstein analyst Jeffrey Lindsay’s musings. Lindsay likens Microsoft, Google, and Yahoo to Ford, GM, and Chrysler. His premise is that all of their cash is buying up successful Internet plays faster than VC’s are funding new ones, and that this is similar to what happened in the early days of the automobile industry.

Lindsay goes on to say that he thinks having too much cash is causing these big players to do the wrong thing. Microsoft loses $1.5B a year just to keep their hand in the Internet game, while all three are playing a cut throat price war on advertising. Meanwhile he thinks Google wastes too much money on inefficient internal product development. I remember a lot of complaining back in the first dot com bubble by people like Andy Grove about how strange things get when the cost of capital falls to nearly zero.

Adding to the general blight on innovation is Lindsay’s contention that the big players don’t do anything once they’ve acquired the innovative companies and their management teams. Not only do they not do anything, but they simply copy each other’s strategies. Lindsay says they’re like yesterday’s unsuccessful media conglomerates, and blames this tendency for AOL and Yahoo’s downfalls.

I tend to agree with what’s been said here. I’m not completely sure it’s bad for innovation though. At some point, companies quit innovating as much and just focus on execution. Provided they are acquired after that point, it may actually benefit innovation. After all, the creative people who built the company may then go on to do something else innovative. But it does tend to mean that the particular product, strategy, or niche plateaus and goes nowhere.

The other thing that struck me about the article is that it applies to Enterprise software just as much as Internet software. There are big companies like Oracle waiting for their next acquisition fish to grow big enough to be worth hooking. Meanwhile, there are relatively few new plays being funded by VC’s. The SaaS crowd is very promising, but the dot com bubbles (there’ve been two now, haven’t there?) have starved the formation of new Enterprise plays. In fact, the SaaS group is not very far along taking over from the perpetual license companies precisely because there are not yet great SaaS companies in every niche.

One of the things I keep waiting for is for the tech industry to show signs of maturity in understanding how to manage acquisitions. There are some great models out there like General Electric, Johnson and Johnson, or 3M. Most Tech Industry acquisition doesn’t have that great “collection of independent companies under one big brand” approach. Our methods are more about milking companies that have peaked. This is certainly a lucrative business (Oracle doesn’t do badly at all!), but I’m not sure it is as successful as what we see outside Tech. The closest thing we have to it so far seems to be Cisco in terms of its ability to keep acquired franchises relatively vital and growing. Does anyone know of other great examples in the Tech Industry?

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Few things are more fun for me than to hear a CEO speak passionately about their company. For that reason, I love interviewing them for this blog. I recently had the opportunity to interview Michael Crandell, CEO of RightScale.RightScale is a fascinating company that has an automated Cloud Management Platform.

We use it at my company, Helpstream, to help us manage our virtual cloud IT assets, and like the software.Evidently we’re not the only ones because RightScale has grown rapidly.The three founders (Michael, CTO Thorsten von Eicken, and VP of Engineering Rafael Saavedra) started with a seed round of $700K in September 2007.They took their first full VC round of $4.5M from Benchmark in April 2008.That was recently followed by a $13.5M round from Index and Benchmark.It takes a lot of momentum to pry that much capital loose from VC’s in these times!

In terms of customers, they have just under 10,000 free customers and several hundred paid customers.RightScale’s service is such that you can start out using the free version and getting great value and then graduate to the paid version.

Last part of the profile, Michael and Co. have the wonderful luxury of being based in Santa Barbara, which is a wonderful town to be in.

RightScale is an automated Cloud Management platform.It’s a platform in the sense you can control manage and develop IT infrastructure in the Cloud.It’s your window or portal to your virtual data center.

We offered it to provide 3 points of value:

1.Automation.Customers are very interested in making it easy to get on to the cloud.We provide pre-packaged solutions for common tasks to create an easy on-ramp.MySQL, Web Site front end, grid.Also Automation of server admin.

2.Multi-Cloud Support.Companies don’t want to be locked in to a single cloud source.We can provide some portability.

3.Transparency.You can get at any level of the stack on your servers, so it’s a true platform.

Why do your customers want to be in the Cloud and on Amazon?

There are two reasons, really:

1.Cost Savings is compelling.Driven by capex vs opex.Variable vs fixed costs.Pay as you go is less capital intensive.Elasticity.

2.Agility.Get servers quickly, get projects up and running quickly.

<Aside:I mentioned that Helpstream has saved about 60% of our datacenter costs by switching to Amazon and Michael said this was pretty typical among his customers.>

What’s the neatest thing you’ve seen your customers do with the Cloud?

Tough question.One of the great aspects of my job is that it’s fun to see all the neat solutions.Here are some examples:

–Animoto:A cool service that creates photo slide shows set to music.<I agree and love Animoto!>

–Playfish: British educational games.They needed scalability and geographical distribution.<Amazon has worldwide datacenters and makes it easy for small companies to deliver a service worldwide.>

–TC3 Health:Health insurance claim fraud analytics.They use Rightscale to spin up 100’s or 1000’s of servers to go through millions of transactions in order to weed out the fraudulent ones.

–A large pharma company:Has a program where a drug researcher can spin up a grid for protein analysis.<Protein analysis is very compute intensive!>

Why does RightScale support multiple clouds?Why would a customer look at another cloud?

It’s all about avoiding lock-in.

For example, a big media company we’re working with <you’d recognize the name!> has an outbound media site and wanted to do fan profiles.They wanted to do it in the cloud because traffic is unpredictable.But, they have an internal policy that prohibits any single source solution.So we worked with them to do a non-cloud solution (at the time that’s all that was available) so they could prove their solution wasn’t single sourced to Amazon.

Today we support Flexiscale and GoGrid.We’re adding Rackspace in the future, as well as others.

We also support Eucalyptus, which is an open source solution that lets you build an EC2 compliant cloud on your own hardware.

Don’t most customers use Amazon?

This is more a matter of keeping the door open for the future.Amazon has a big lead as a first mover.They established the category by making it so easy to rent servers with a credit card in a way that’s no harder than buying a book.

<Translation:RightScale gets more Amazon companies to buy their product as an insurance policy should they need or want to use other Cloud infrastructure.>

Tell us about the impact of the economy on Clouds, SaaS, and RightScale?

I’ve never seen anything like it.We’re in unprecedented times.It’s tough to predict, but we believe Cloud Computing is really strong in the downturn.There’s tremendous demand for cost savings coupled with the benefits of outsourcing.

People running datacenters in house often don’t look at fully burdened costs.If you really look at it straight up, Amazon is a lot cheaper.<I agree and have seen the numbers from Helpstream that leave no doubt. It’s funny, you constantly read people trying to do back of envelope math and concluding Amazon is expensive, but they aren’t adding up the full datacenter costs!>

That big pharma company I mentioned told me, “If we can avoid buying another blade server ever, we’re going to.”There’s a lot of companies that feel that way.

It won’t be every workload and it won’t be tomorrow, but there is a lot of pent up demand for that.

How are you going about getting your leads in this market?

We have a particular market approach.Our Benchmark Board Member, Kevin Harvey, calls it “advantaged customer acquisition.”No advertising.We grow via word of mouth and PR.We also have a free edition that is an engine of growth from the start.It will be permanently free and it has a lot of utility.We do well with Webinars, including a series on best practices.We try to deliver content.If we provide value and information, the business will come.

We don’t argue or educate about the Cloud, it’s rather about how we can help.

Is there anything special about the Amazon ecosystem you can rely on to help?

Two answers.Amazon has been a good partner since the beginning, but at arm’s length.There are no special favors.Within the limits of the fact that companies drive business to them.

Selfishly we’d like them to favor some of the larger players because we think that serves customers.

We cooperate on specific tractionable engagements.They refer customers to vendors who ask how to solve a problem to the right vendor to help.Conversely, we help them with startup camp speakers and such.We’re also on their developer advisory committee, so we give them a lot of feedback to help bring out new Amazon functionality.

Let’s talk about social media and community for RightScale.

We love that world.It’s helped drive RightScale’s growth and success to date via our Advantaged Customer Acquisition.It’s part of our plan to expand that to do an even better job to encourage a developer and ISV community.We’d like to develop our own ecosystem.

It’s also a fact that there are a lot of Web 2.0 companies in our customer base.We see more complex web sites with database backends==complex multi-tenant web scale operations.

<At this point I took the opportunity to point out that Helpstream has an integrated solution combining community and customer service that’s right up his alley.>

Conclusion

Great interview with Michael.I learned a lot and had a lot of things I suspected about the Cloud world and marketing in this economy confirmed.RightScale certainly has the numbers that show them gaining tremendous traction despite the tough times.I love their approach to selling by using a content-rich and social outreach program.Heavy on PR, light on advertising.This is a lot like what the folks at Rally Development use too.